Treasuries sink with gold as dollar jumps, U.S. stocks retreat

Treasuries tumbled with gold and the dollar rallied, while U.S. equities retreated, as concern grew that the Federal Reserve will scale back its stimulus efforts if the labor market continues to improve.

Ten-year Treasury yields jumped 10 basis points to 2.03% at 3:14 p.m. in New York, topping 2% for the first time since March. The Dollar Index rose 0.6% to 84.35, trading near its strongest level since 2010. The Standard & Poor’s 500 Index lost 0.7% at 1,656.79, retreating from a record after climbing as much as 1.1% earlier. Gold futures retreated 1.4% to $1,359.00 an ounce, after rising as much as 2.6%.

U.S. stocks extended gains earlier while gold and Treasuries rallied as Fed Chairman Ben S. Bernanke told Congress that a premature end to its bond buying would put the economic recovery at risk. Treasuries and gold turned lower as Bernanke later told lawmakers that the flow of purchases will slow as the employment outlook “improves in a real and sustainable way.” A number of officials said they were willing to taper stimulus as early as June, minutes from the Fed’s last meeting showed.

“The 2% is the magic thing on the 10 year yield,” Frank Ingarra, head trader at Greenwich, Connecticut-based NorthCoast Asset Management LLC, said in a telephone interview. His firm oversees $1.6 billion. “It’s the threshold so going toward that, people are getting a little worried,” he said. “People are just digesting more of Bernanke’s comments.”

The slide in Treasury prices after Bernanke’s remarks sent the 10-year note’s yield above the S&P 500’s 2% dividend yield for the first time in more than a year, according to data compiled by Bloomberg.

Fed Watch

Bernanke is leading the most aggressive economic stimulus in the Fed’s 100-year history in an effort to spur growth and reduce an unemployment rate that stands at 7.5% almost four years into a recovery from the worst recession since the Great Depression. Policy makers will know in three to four months whether the economy is healthy enough to overcome federal budget cuts and allow the central bank to begin reducing stimulus, Fed Bank of New York President William C. Dudley said in an interview airing today on Bloomberg Television.

Many Fed officials said more progress in the labor market is needed before deciding to slow the pace of asset purchases, according to minutes of their last meeting.

“Most observed that the outlook for the labor market had shown progress” since the-bond buying program began in September, according to the record of the April 30-May 1 gathering released today in Washington. “But many of these participants indicated that continued progress, more confidence in the outlook, or diminished downside risks would be required before slowing the pace of purchases would become appropriate.”